XPEL, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a fourth-quarter earnings report; standalone Q4 results are not clearly provided in the filing.
Business context
XPEL sells and installs automotive paint protection and window films, architectural films and ceramic coatings, and provides related proprietary design software and training. Its primary product is paint protection film. Sales are made through installers and dealerships, distributors, company-owned installation centers, franchisees and online channels. Approximately 53% of FY2020 revenue was generated outside the United States.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $158.9 million | $129.9 million | +22.3% |
| Gross profit / margin | $54.0 million / 34.0% | $43.5 million / 33.5% | +24.2% gross profit |
| Operating income / margin | $23.4 million / 14.7% | $17.1 million / 13.2% | +36.8% |
| Net income | $18.3 million | $14.0 million | +30.6% |
| Diluted EPS | $0.66 | $0.51 | Up |
| Operating cash flow | $18.5 million | $11.0 million | Up |
Paint protection film revenue rose 13.8% to $110.8 million; window film revenue rose 84.0% to $21.0 million. Service revenue increased 27.8% to $22.7 million, including 65.0% growth in installation labor. EBITDA, a non-GAAP measure defined by the company, was $25.3 million, or 15.9% of revenue, compared with $18.7 million, or 14.4%, in 2019.
Cash and cash equivalents were $29.0 million at year-end, versus $11.5 million a year earlier. Net working capital was $41.6 million. Investing activities used $4.7 million, primarily reflecting acquisitions; financing activities provided $3.5 million. Reported debt obligations were approximately $6.1 million. A $6.0 million term loan was issued in May 2020, with $5.1 million outstanding at year-end; the company’s U.S. and Canadian revolving credit lines had no year-end balances. Management said available cash, operating cash generation and committed facilities were sufficient for at least 12 months from the filing date.
Changes, outlook and risks
- Revenue and earnings grew despite early-year COVID-19 disruption: China revenue declined in January and February, and U.S. revenue fell in April; management said demand rebounded from the second quarter and regions grew from June.
- Gross margin improved to 34.0%, reflecting product-cost improvements, operating leverage and a lower share of sales through lower-margin distributors. Service gross margin declined to 71.8% from 76.8%, partly because installation labor grew faster than software revenue and staff continued to be paid during pandemic-related shutdowns.
- 2020 acquisitions included Protex Centre in Canada, France Auto Racing and Veloce Innovation. Acquisitions contributed $3.8 million of revenue and $1.1 million of operating income from their respective acquisition dates.
- The filing provides no specific revenue or earnings guidance. Management’s stated strategy emphasizes international expansion, acquisitions, local customer presence and growth in non-automotive products.
- Concentration risks are material: one supplier provided approximately 75% of inventory purchases, and the sole China distributor represented 20.6% of revenue. The supply agreement includes a $20 million annual minimum purchase requirement.
- Other disclosed risks include automotive-market dependence, competition, COVID-19 and other economic disruption, foreign exchange exposure, trade and regulatory uncertainty, cybersecurity, and execution of rapid growth and acquisitions. The company reported no material impact from cybersecurity incidents to date.
- Ordinary-course litigation and claims were disclosed; management considered a material impact unlikely. The warranty liability was $52,006 at year-end. The independent auditor issued an unqualified opinion on the financial statements; the auditor did not opine on internal-control effectiveness. Management assessed disclosure controls as effective.
Key facts for investors to verify
- Whether growth and margin improvement can continue, particularly in paint protection film, rapidly growing window film and installation services.
- Supplier continuity and the economics of the minimum-purchase commitment; also the durability of the China distributor relationship and demand in China.
- Cash conversion and working-capital needs: inventory increased to $22.4 million from $15.1 million while operating cash flow rose to $18.5 million.
- Debt repayment, acquisition-note obligations, and the effect of planned warehouse leases and future acquisition spending on liquidity.
- The extent to which reported growth reflects underlying demand versus acquisitions, currency movements and pandemic-related recovery.